In the recent case of Clipper Logistics Plc v Scottish Equitable Plc, the County Court provided some interesting insight into its approach when deciding whether ‘green lease’ clauses could be added to a lease subject to renewal under the Landlord and Tenant Act 1954.
What were the clauses?
The landlord wished to add the following alteration covenants to the renewal lease:
- To prohibit the tenant from carrying out alterations or additions to the property which would result in the property having an energy performance rating below Band E;
- To require the tenant to indemnify the landlord for the cost of obtaining a new EPC certificate if they were to make any alterations which invalidated or adversely effected the EPC; and
- To oblige the tenant to maintain the current EPC rating, return the premises to the landlord with the current EPC rating and promptly carry out remedial works to restore the EPC rating if it decreases.
What was the Court’s approach?
The Court’s starting position was that it is the landlord’s responsibility to comply with energy efficiency regulations. It acknowledged that, without any mechanism to regulate the tenant’s actions, a landlord could be “placed in breach of the regulations through no fault of their own”. However, given the current provisions of the lease, it did not consider all of the proposed clauses to be necessary.
The Court’s aim was to “strike a fair and reasonable balance between the parties” and only add clauses which could “be justified on the grounds of essential fairness”. On this basis the Court decided:
- The existing prohibitions in the lease on alterations were sufficient to protect the landlord from tenant acts that could damage the EPC rating of the property.
- The clauses all together would place too high a burden on the tenant.
- A clause requiring the tenant to “return the premises to the Landlord with the same EPC rating as it has as the date of this Lease” was a fair and reasonable addition to protect the landlord from inaction by the tenant over a 10 year term.
We continue to see a growing number of ‘green lease’ terms being proposed in new leases and in lease renewals. With wider reforms taking place to align the market with the UK’s Net Zero ambitions, it is likely such clauses will become ever more prevalent.
This judgment shows, however, that whilst the Court may have sympathy for the landlord’s vulnerability under the existing Minimum Energy Efficiency Standards (MEES) regulations, adding obligations on tenants to attempt to reduce the landlord’s liability will not be considered fair or reasonable in the context of lease renewals.
The decision in this case was undoubtedly influenced by the other, existing, clauses in the lease which the Court felt would provide an element of protection to the landlord. However, the case does go to show that it cannot be assumed that a landlord will automatically be able to include clauses to protect their position in relation to MEES.
James Sutherland (Partner) and Catherine Banton (Senior Associate)
"I must assess whether the proposed changes are fair and reasonable and can be justified on the grounds of essential fairness. I have concluded that to go further than I have done would fail to strike a fair and reasonable balance between the parties because it would unreasonably burden the Claimant and unfairly advantage the Defendant."